Pay Analyst Examines Exec Salary Cap

Under new rules, the top executives of those companies that seek federal bailout funds cannot earn more than $500,000. Steven Hall, managing director of Steven Hall and Partners, an executive compensation consultation firm, offers his insight on what the change means.

Copyright © 2009 NPR. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.

ROBERT SIEGEL, host:

We wondered whether capping executive compensation at $500,000 would be felt by a few, some, most or nearly all the executives on Wall Street. So we've called up Steven Hall, who has a compensation consulting firm in New York City. Mr. Hall, 500,000, how common?

Mr. STEVEN HALL (Compensation Consulting Firm, New York City): 500,000 is probably someone who has been working on Wall Street for three to four years in the investment side. If they've been working for longer than that, they are certainly above that level.

SIEGEL: Let's take a company like Citigroup, would there be several dozen people making over 500,000 a year there, do you think, or a lot more than that? What's your…

Mr. HALL: Oh, I think of the Citigroup overall here in the thousands, I would think.

SIEGEL: There's a story in the Wall Street Journal about bonuses, which quote some examples. They quote the case of Josh Birnbaum, trader at Goldman Sachs, who reaped a $4 billion profit on the housing credits as investments, and so, he got a bonus of $10 million. Are those sort of the handful of all-star performers on Wall Street making 10 million or are there dozens or scores of them?

Mr. HALL: That is not an exception in terms of Wall Street pay. Wall Street is a wonderful place in terms of, if you perform, if you develop revenue and profits for the company, you'll be very, very well-rewarded. And if you're not very well-rewarded, you'll simply pick up your skills and go to another firm that will be willing to pay you those kinds of dollars.

SIEGEL: Let's say that there are some firms on Wall Street that are capped at 500,000 a year and there are others that aren't. Are those that are capped -even understanding this could be a temporary situation until the financial sector's woes are sorted out - would they really have trouble retaining and attracting people?

Mr. HALL: I believe that they - if, in fact, the compensation for certain people was capped at 500,000, and of course, the rule permits you to give restricted stock that will vest after you get out of TARP, but if you limit people's pay to 500,000, I think you will have people looking for alternative places of employment.

SIEGEL: But what are the alternatives for somebody who says, you know, I'm not going to work for half a million. I want a crack at the $5 million bonus. Where you go to find that?

Mr. HALL: You potentially look at a company that is not operating under TARP or one of these financial assistance programs, and there are both either public firms or private firms that are like that. And you find, in many cases, that those companies would welcome you with open arms.

SIEGEL: So, if I were a - let's not say a great, let's say a very good performer , who is accustomed to making couple a million dollars a year, let's say - you say one opportunity, one choice I would have is for me to say, I'll beat the cap, I'll go out, hang a shingle on my own. Tell the investors whom I have been working with, I'm going out on my own, you want to come with me? I'll serve you well. That's one option.

Mr. HALL: That is an option, but just to clarify, we have to make sure, because what we don't have completely clear yet is the definition says that - from what I've seen of the definition - it talks about a cap of $500,000 to senior executives. We still don't have a definition of what is a senior executive.

SIEGEL: So you think it's possible that the people at the very top of some of the TARP assisted firms might be capped, but indeed among the people working for them might be a large number of uncapped people who are just not senior enough to come under the restriction?

Mr. HALL: That's what it appears to be, yeah.

SIEGEL: But from what I'm hearing you say, I mean, the notion of $500,000 on Wall Street has thousands of people asking: Where's the Bentley with that kind of pay package?

Mr. HALL: You're going to have a lot of those people asking: Where is my bank book because I've got to go make a withdrawal out of my savings account, in order to continue to live? And I realize that in today's world, there's not a lot of sympathy for people that are in that situation, with a number of people that've lost their jobs and taken pay-cuts or pay-freezes. But the reality is these people have built a lifestyle based on expecting that they were going to earn significantly more. And this is a real drag on how they're going to meet the obligations that they and their family have set forth.

SIEGEL: Steven Hall, thanks a lot for talking with us today.

Mr. HALL: Thank you.

SIEGEL: It's Steven Hall, who runs a compensation consulting company, in New York City, talking about the Treasury's new restrictions on compensation to finance sector executives.

Copyright © 2009 NPR. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to NPR. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.

Obama Moves To Cap Pay For Bailout Recipients

Executives from companies accepting federal bailout money will have to adhere to strict limits on their pay, President Obama said Wednesday, reacting to a spate of reports that the firms were taking taxpayer dollars while handing out lavish bonuses and junkets.

The White House plan would place a $500,000 cap on the annual salaries of executives whose companies accept federal bailout funds. Obama, flanked by Treasury Secretary Timothy Geithner, called huge executive compensation packages "the height of irresponsibility."

"This is America. We don't disparage wealth," the president said. "We don't begrudge anybody for achieving success, and we certainly believe that success should be rewarded.

"But what gets people upset, and rightfully so, are executives being rewarded for failure — especially when those rewards are subsidized by U.S. taxpayers, many of whom are having a tough time themselves," he said.

"We're going to be demanding some restraint in exchange for federal aid," he added.

The disclosure on Tuesday that Wells Fargo bank was planning a lavish Las Vegas outing for its mortgage writers, though it received federal bailout money, has helped fuel outrage among average Americans. After first defending the Las Vegas trip, Wells Fargo later said it had been canceled.

"We're going to be demanding some restraint in exchange for federal aid — so that when firms seek new federal dollars, we won't find them up to the same old tricks," Obama said.

Obama, who has called Wall Street bankers "shameful" for giving themselves $18 billion in bonuses, told NBC Nightly News on Tuesday that executives at financially strapped firms should not be living "high on the hog."

In addition to the salary cap, Obama and Geithner announced restrictions on bonuses, payouts or "golden parachute" severance packages for companies accepting taxpayer assistance.

The most restrictive limits would apply only to the largest firms that receive considerable government assistance. Healthy banks that receive smaller government infusions of capital would have more leeway.

Firms that wish to pay their executives above the $500,000 threshold would be allowed to compensate them with stock that could not be sold until the rescue funds from the government are paid back, the White House official said.

Congress is already looking into similar proposals. The move comes before the Obama administration's expected unveiling next week of a new framework for spending the money that remains in the $700 billion financial rescue fund.

Some Republicans also have raised concern.

"In ordinary situations where the taxpayers' money is not involved, we shouldn't set executive pay," said Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee. "But where you've got federal money involved, taxpayers' money involved, TARP money involved ... the way they have spent it, with no accountability, is getting close to being criminal."

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.